Federal Reserve Chairman Ben Bernanke told lawmakers during his two-day semiannual testimony that the central bank is evaluating three options for boosting the economy further if necessary: altering its “extended period” language to emphasize its commitment to keeping short-term rates low; balance sheet maneuvers such as asset purchases; or, to encourage lending, lowering the rate it pays on reserves that banks store at the Fed.

Each of those options carries drawbacks, he told a Senate committee Wednesday. Testifying before the House Financial Services Committee today, he elaborated on the risks of doing one of them: Lowering the interest rate it pays on excess reserves — now at 0.25% — could create trouble in money markets, he said.

“The rationale for not going all the way to zero has been that we want the short-term money markets, like the federal funds market, to continue to function in a reasonable way,” he said.

“Because if rates go to zero, there will be no incentive for buying and selling federal funds — overnight money in the banking system — and if that market shuts down … it’ll be more difficult to manage short-term interest rates when the Federal Reserve begins to tighten policy at some point in the future.”

Still, Mr. Bernanke acknowledged that lowering the rate “would have a bit of an effect on monetary-policy conditions and we’re certainly considering that as one option.”

The Fed chairman agreed that lowering the rate would have some benefit to the Treasury. Not paying the 0.25% interest on roughly $1 trillion of reserves amounts to $2.5 billion.